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In Canada’s real estate market, homeowners are searching for bigger and better homes. Sometimes, being locked in a mortgage for an existing property can seem like a big hindrance to these dreams. Don’t despair because in many cases, transferring your mortgage is possible and can unlock better opportunities for you.
Transferring a mortgage such as when you are selling your home and need to buy a new property makes sense if the terms and conditions of your existing mortgage are good. This is particularly true if prepayment penalties are minimal or none at all.
This option is great for people who wish to relocate to a new city or get a bigger property without breaking the mortgage contract.
However, it isn’t always easy to transfer a mortgage. In this guide, we aim to provide you with as much information as possible to help you explore your options and understand the implications.
For instance, can you increase the loan amount when you transfer a mortgage? What are the pros and cons?
Mortgage transfer can seem complicated but armed with knowledge and an expert by your side, the process can be much easier than you think.
If you are selling your house, the buyer may be interested in retaining the current mortgage even with the change in ownership. Of course, this is only an attractive option if the mortgage terms are advantageous.
If you need assistance with a mortgage transfer, simply fill out the form on this page. Our partner brokers will be glad to assist you with FREE and NO-COMMITMENT quotes.
Let us explain a little bit more about mortgage transfers and what they involve so you can decide if this is the right option for you.
A mortgage transfer, also referred to as porting a mortgage, means bringing your current mortgage with its existing terms and conditions from one property to a new one. You can do this only if you are selling your home and buying a new one at the same time.
Is it similar to renewing a mortgage? What is the difference?
The two are not the same. A mortgage transfer only applies to a homeowner purchasing a new home and wishing to use the same mortgage. It usually occurs when the mortgage is still in the middle of its term such as 5 years.
In contrast, you renew a mortgage when it has finished its term and you choose to stay with the same lender or switch to a new one. It will be for the same property under the mortgage. Thus, it is a simpler process than porting a mortgage.
You must know, however, that not all lenders offer this option. If there is any chance that you will not finish the term of your mortgage, always check with your broker or lender if the option to transfer your mortgage is available.
If there is even a slight possibility that you will need to move your mortgage or pre-terminate it, choose an open mortgage to avoid stiff penalties.
When is it ideal to transfer a mortgage?
If you are selling your home and buying a new one, consider if your current mortgage is advantageous for you. If you like the terms and conditions, you may want to speak to your lender or broker about moving your mortgage.
However, if you can get a better mortgage offer for the new property with a lower interest rate than you are paying now, it may be better to simply obtain a new mortgage.
You must check your mortgage contract if you will be breaking your mortgage and paying penalties. In some cases, paying the prepayment penalties is still worthwhile if you are getting good value from a new home purchase and a new mortgage.
If you are buying a new house, you may need to get a loan with a higher amount than your existing mortgage. In this case, the lender may offer an increase in your loan amount and a reasonable average between your current rate and the new loan.
A combination of these two interest rates will apply to your new mortgage loan.
What if the lender does not allow the transfer of your mortgage?
If the lender does not allow a mortgage transfer, you will need to obtain a new lender. This also means you may be breaking the mortgage and will be paying penalties.
Note that when you go to a different lender, you will need to requalify. Basically, you will be switching lenders and getting a new mortgage.
A reliable and experienced mortgage broker from our network will be happy to assist you in this case.
When transferring a mortgage, lenders take a few things into account.
The interest rate: If your mortgage has a fixed interest rate, the odds of transferring your mortgage is high as long as the lender offers this option. If you have a variable rate, the lender may require you to change to a fixed rate.
Price of the new home: If you are buying a new house with a higher price tag than your current one, your lender may offer you a blended option. Your monthly payments will remain but the difference will be blended into your current mortgage with a different interest rate. Of course, you will also need to qualify for a higher loan amount.
Your lender will check if you can afford a higher mortgage amount and do a new credit check. This will determine if can transfer your mortgage.
Many lenders require a credit score above 650 to borrow a larger amount.
Most lenders offer portable mortgages and specify this during the approval process. But a few lenders do not provide this option. This is why it is very important to compare and shop around for mortgages and work with a mortgage broker.
Given the real estate landscape with many homeowners moving before the end of the term, you need to be sure you choose a mortgage that offers you many advantages such as porting a mortgage.
Porting or moving your existing mortgage can help you save money on interest and other miscellaneous charges. Take a look at what you can save:
Low-interest rate: If your mortgage has a low interest rate, you can save on interest costs. You can transfer your existing rate to your new residence.
Blended rate: If you need an additional amount, your lender can offer you a blended rate – a combination of your existing rate with a new rate for your additional loan. You will still enjoy a lower monthly payment with this arrangement even as you obtain additional funds.
Avoid penalties: When you port your mortgage rather than get a new one, you save on penalties which can amount to thousands of dollars. The final amount you save depends on the time left on your term.
If you are selling your home, it is possible to transfer the mortgage to a buyer. This is also referred to as the buyer assuming the mortgage.
This makes a lot of sense if you are not buying a new house at the same time you are selling your property. The buyer may be interested in this arrangement if your mortgage terms are favorable.
It goes without saying that the buyer will have to agree to his. They have to pay you, the seller, the difference between the mortgage amount and the purchase price.
As an example: If the mortgage balance is $150,000 but you are selling your house for $220,000, the buyer will carry the mortgage but pay you
For example: If your outstanding mortgage balance is $200,000 but you want to sell the home for $300,000, the buyer would assume the mortgage but then pay you the difference of $100,000. ($300,000 – $200,000 = $100,000 balance)
Hence, not all buyers will find this easy and there is also a risk to you should the buyer default in the payments.
The most important things to consider when a buyer is willing to assume the mortgage are:
· The buyer will qualify for the mortgage with the lender
· You will not be responsible for the original mortgage loan agreement
In some cases, the lender will stipulate a condition that you are to remain on the loan agreement for the first 12 months and will only be released once 12 consecutive payments have been made to the mortgage loan.
This type of mortgage is ideal between family members or relatives.
If you are considering a mortgage transfer to a buyer, you will want to consider the tips below to reduce the risks.
As the seller, you can include a clause in the purchase contract that stipulates that at the end of the mortgage term, the buyer must be able to obtain his own mortgage loan and release you from the mortgage. The buyer will, of course, have to agree to this.
You can also include a clause in the contract that should the buyer sell the property in the future, you are released from any obligation with the mortgage.
You can also try to speak to your lender about issuing a document stating that you are released from obligation once the buyer assumes the mortgage. This is not guaranteed but you can try convincing your lender, especially if the buyer is a good prospect.
If you are selling your home, you need to decide what to do with your mortgage. There are 3 options you can consider:
· Mortgage transfer
· Assuming a mortgage (with the buyer)
· Breaking a mortgage
We have already explained the first two options in the above sections and we hope you now understand how they work.
In case the two options are not ideal for your situation, your other option is to break your mortgage.
Breaking a mortgage is a common step homeowners make when they sell their homes, especially if the interest rates in the market are low. You will cancel your mortgage agreement and pay the lender a penalty fee.
Penalty fees usually involve 3 months of interest or differential, whichever is higher. When looking for a new lender, you need to compare how lenders calculate penalty fees.
In most cases, it makes sense to break a mortgage to pay for an existing mortgage while obtaining a new one with more favorable terms and conditions.
Before arriving at a decision about your mortgage, find a reliable and experienced mortgage broker to explain your options. He can also explain to you the process you need to undergo to cancel your mortgage and take out a new one.
Whether you want to sell your house and port your mortgage to a new property or refinance a mortgage, it is best to consult professionals. They can provide you with valuable insights, based on their training and experience, to help you find the best rates and terms ideal for your goals.
Mortgage brokers are the go-to professionals when it comes to mortgages. They can shop around for the best mortgage products, negotiate on your behalf with lenders, assist with the approval and documentation, and answer your questions throughout the mortgage process.
When you are also in the market for a new house, consult a mortgage broker as he can find the best solutions that can ultimately save you thousands of dollars.
Bear in mind that mortgage brokers are independent professionals who work with a variety of lenders and are not loyal to one specific lender. Hence, they are free to offer you mortgage products from the different lenders so you can get the most advantageous one.
Most importantly, you get all his expertise to work for you without paying for his time and efforts! Your mortgage broker will be compensated by the lender you choose to work with!
Selling and buying a new home simultaneously is a very huge endeavor as it significantly affects your current and future finances. Hence, it is so important to have an experienced and reputable mortgage broker by your side!
It does not cost you anything to consult with a mortgage broker from our network so you can compare your mortgage options and make the best choice!
With his network of lenders, a mortgage broker is in the best position to shop around on your behalf to look for the best mortgage terms and conditions. He will listen to your situation, understand your goals, and offer you the best options to meet those goals.
Fill out the form below to connect with reputable mortgage brokers in your area, free of charge!
This is your first step to ensuring the success of your home sale and purchase.
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